Karur Vysya Bank (Q1 FY14)

India Infoline News Service | Mumbai |

Karur Vysya Bank (KVB) reported a healthy growth of 4.3% qoq/25.8% yoy in its credit portfolio.

CMP Rs342, Target Rs350, Upside 2.4%

  • Karur Vysya Bank (KVB) reported a healthy growth of 4.3% qoq/25.8% yoy in its credit portfolio. The growth was primarily driven by Agriculture (7.3% qoq), Commercial (5.4% qoq) and Retail (5.3% qoq) segments. The Retail segment registered robust yoy credit growth of ~71%. Jewellery loans (26.5% of total advances) grew by 5.3% qoq/40.4% yoy. Management has guided 23-25% credit growth for FY14 largely driven by Retail and Commercial segments. Deposits grew at a robust pace, up by 8.2% qoq/26.9% yoy. As a result, Credit/Deposit ratio fell by 3ppt, from 77% in Q4 FY13 to 74% in Q1 FY14. Robust growth in deposits was primarily led by Term Deposits (8.9% qoq/29.2% yoy). CASA (5.1% qoq/17.9% yoy) growth trailed the total deposits growth resulting in sequential dip of 55bps to 18.7% in Q1 FY14.


  • NIM declined by 29bps sequentially to 2.77% in Q1 FY14, in contrast to our expectation of 7bps increase. This is attributable to a sharp fall in Yield on Funds (41bps qoq) more than offsetting the fall in Cost of Funds (9bps qoq) and steep decline in C/D ratio by 3ppt sequentially. Going forward, we expect NIM to remain under pressure anticipating a further deterioration in asset quality and likelihood of upward revision in Term Deposit rates.


  • Asset quality deteriorated significantly with GNPA ratio rising from 0.96% in Q4 FY13 to 1.51% in Q1 FY14. Delinquency ratio stood at multi-quarter high of 2.6% in Q1 FY14. Of the total slippages of Rs1.9bn in Q1 FY14, ~Rs1.4bn was accounted by 6 large accounts. Adequate provisioning kept the PCR intact at 75%. Outstanding restructured advances stood at 3.9% of total advances. During the quarter, bank restructured advances worth Rs2.9bn and has a pipeline of ~Rs1bn expected to be restructured in Q2 FY14. We expect total impaired assets to remain elevated given the tough operating environment.


  • Non-interest income spiked up significantly (31.1% qoq/98.4% yoy) driven by substantial trading gains. As a result, Cost/Income ratio improved by 8ppt qoq to 40.8%. We expect C/I ratio to remain elevated in the ensuing quarters driven by weak Net Interest Income growth and lower trading gains. Bank plans to add 60-70 branches in FY14 as against 100 branches in FY13.


  • KVB’s CAR and Tier I ratio stood at 12.9% and 11.7% respectively, adequate to comply with Basel III norms and to execute its planned balance sheet growth.


  • Sharp deterioration in asset quality and margin compression has raised concern over the bank’s performance. In the wake of bleak operating environment stressed asset ratio is likely to rise further, resulting in weak Net interest Income growth and elevated credit cost. Building in these assumptions, earnings are expected to de-grow in FY14 causing a significant drop in RoA. Thereby, we downgrade the stock to Market Performer with a reduced target price of Rs350. 

Result table
(Rs mn)
Q1 FY14
Q4 FY13
% qoq
Q1 FY13
% yoy
Total Interest Income
12,225
11,262
8.6
10,055
21.6
Interest expended
(8,907)
(8,158)
9.2
(7,516)
18.5
Net Interest Income
3,319
3,103
6.9
2,539
30.7
Other income
2,069
1,578
31.1
1,043
98.4
Total Income
5,388
4,681
15.1
3,582
50.4
Operating expenses
(2,201)
(2,283)
(3.6)
(1,555)
41.5
Provisions
(1,632)
(888)
83.8
100
(1,734.9)
PBT
1,556
1,511
3.0
2,127
(26.9)
Tax
(353)
75
(571.4)
(667)
(47.1)
Reported PAT
1,203
1,586
(24.1)
1,460
(17.6)
EPS
44.9
59.2
(24.1)
54.5
(17.6)
 
Key  Ratios
Q1 FY14
Q4 FY13
chg qoq
Q1 FY13
chg yoy
NIM (%)
2.8
3.1
(0.3)
2.8
(0.0)
Yield on advances (%)
12.2
12.7
(0.5)
12.8
(0.6)
Yield on investments (%)
7.7
BSE 114.20 [0.35] ([0.31]%)
NSE 113.90 [0.45] ([0.39]%)

***Note: This is a NSE Chart

 

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